There are two conditions reportedly guaranteed to Peter Angelos and the Baltimore Orioles as part of the suddenly-hasty move of the Expos to Washington, D.C. Boy, for all the years of foot-dragging, it’s amazing to see how fast they could have moved if they had really wanted to. But that’s not as interesting as the unprecedented promises made to Peter Angelos.
First, Angelos and company will be guaranteed that if they sell the team, they will be guaranteed a minimum value. This is probably going to be between $250 million and $325 million, depending on what valuation method they agreed on and how would be an actual payoff to the Orioles. It could, for instance, be as much as $400 million, guaranteeing the Orioles’ owners a substantial chunk of money beyond the franchise’s worth.
Second, the Orioles will be guaranteed revenues. The amount of this guarantee is likely to be approximately the amount of money they make now.
Taken together, this is easily the worst deal MLB has made with anyone, ever. Not because it will necessarily turn out badly, but because it has the potential to do so in a spectacular fashion.
Let’s say MLB guarantees the Orioles $150 million a year in revenue, even with the Expos moving into the District. Peter Angelos now has the greatest guaranteed profit generation system ever.
You can field a bad team (or the A’s) for $40 million dollars. If you run a lean, mean organization, you can run your team’s operations on another $40 million. Eighty million in expenses with $150 million in guaranteed revenues leaves $70 million a year in guaranteed profit.
Teams have been destroyed for far less, run into the ground for the tiny guaranteed profits that baseball’s misguided revenue sharing offered. Imagine what could happen with this sort of motherlode.
As a team, you could give up–entirely–on everything. Selling tickets? Why pay for people to sell tickets? The revenue you’re losing from gate receipts is guaranteed by MLB. The opposing team’s supposed to get a share, but why should you care about them? Why pay for parking attendants?
Indeed, why pay for anything? With guaranteed revenues, every reduction in expenses results only in increased profit. The only things you’d really want to pay would be performance bonuses, to yourself, for being so clever. And a yearly box of chocolates for the Commissioner.
This makes the valuation issue even more ridiculous. Who wouldn’t want to buy a business like this, where nothing could possibly get in the way of making $70 million a year? Angelos could announce he was selling the team for $350 million once the agreement is reached, and his phone would explode as everyone with a dollar to invest called him for details.
Say Angelos goes for it. Obviously, this strategy would tick everyone off. In moving the Expos, a $100 million drain on baseball, they realize that they’ve created a $150 million drain, even as the Expos struggle to establish themselves. MLB fights the team in court over the particulars of the revenue guarantee, and finally weasels out of it. This would likely take years, and they might end up just buying it out.
The Orioles could be by that time a franchise with almost no value in good will, or anything else. Even the worst franchises are worth at least $100 million. His drain of profits destroys the franchise’s value–they’ve got no media contracts, nothing. The franchise is a tear-down project for whoever buys it. The Orioles got three years, say, of sweet, sweet profits out of it. Those $210 million dollars cost him over $200 million in franchise value. Three years would be the break-even point, if you assume MLB can get out of their promises.
But wait! Remember the franchise valuation guarantee? Even if the Orioles use the revenue guarantee to drain as much money as possible until MLB manages to shut them off, they’re still guaranteed to walk away with the same amount of money if they sell the team. Slashing expenses to the minimum needed to field a team every game and pocketing the money is a no-risk, all-profit gamble for the Orioles.
Major League Baseball, and the fans of the Orioles, are counting on the good nature of the team’s owner to not totally screw them over forever. Knowing the history of baseball and the actions of those who own teams, is that any reason to have faith?